Consumer Proposal vs Bankruptcy in Canada — Complete Comparison (2026)

TL;DR

A consumer proposal lets you negotiate to repay a portion of your unsecured debts over up to five years while keeping your assets. Bankruptcy provides a faster discharge but may require you to surrender non-exempt property and make surplus income payments. Both are filed through a Licensed Insolvency Trustee and are governed by the Bankruptcy and Insolvency Act (BIA).

What Is a Consumer Proposal?

A consumer proposal is a legally binding agreement between you and your creditors, administered by a Licensed Insolvency Trustee. Under the BIA, you offer to repay a percentage of your total unsecured debt — typically between 20% and 50% — over a maximum of five years. Once your creditors accept the proposal (a majority in dollar value must vote in favour), all interest charges stop, and creditors cannot pursue collection actions against you.

Consumer proposals are available to individuals whose total debts (excluding a mortgage on a principal residence) do not exceed $250,000. For debts above this threshold, a Division I proposal may be filed instead.

Key features of a consumer proposal:

• You keep all of your assets, including your home, car, and RRSPs
• Monthly payments are fixed and interest-free
• Creditors cannot garnish your wages once the proposal is filed
• You are not required to make surplus income payments
• The process typically takes 3 to 5 years to complete

You can use our consumer proposal calculator to estimate what your monthly payments might look like.

What Is Bankruptcy?

Bankruptcy is a legal process under the BIA that discharges most of your unsecured debts. When you file for bankruptcy, a Licensed Insolvency Trustee takes possession of your non-exempt assets (if any), which are sold to repay creditors. Each province sets its own exemption limits for assets you can keep.

For a first-time bankruptcy with no surplus income, the minimum duration is 9 months. If you have surplus income — meaning your household income exceeds the threshold set by the Office of the Superintendent of Bankruptcy (OSB) — the bankruptcy extends to 21 months.

Key features of bankruptcy:

• Most unsecured debts are discharged upon completion
• You must surrender non-exempt assets
• Surplus income payments are required if your income exceeds the OSB threshold
• A first bankruptcy stays on your credit report for 6 to 7 years after discharge
• Certain debts (student loans under 7 years old, child support, court fines) are not discharged

Use our bankruptcy cost calculator to understand what you might pay.

Cost Comparison

The cost of a consumer proposal varies depending on what your creditors agree to accept. In practice, most consumer proposals result in repayment of 20% to 50% of the total debt. For someone owing $40,000, this could mean total payments of $8,000 to $20,000 spread over up to 60 months.

Bankruptcy costs depend on your income, assets, and whether it is a first-time or repeat filing. The base cost for a first-time bankruptcy with no surplus income is approximately $1,800 (set by the OSB fee tariff). However, surplus income payments can significantly increase the total cost. Someone earning well above the threshold could end up paying more in bankruptcy than in a consumer proposal.

The LIT's fees are included in both processes — you do not pay the trustee separately in either case.

Credit Score Impact

Both a consumer proposal and bankruptcy will significantly affect your credit score, but the timelines differ.

A consumer proposal is noted as an R7 rating on your credit report. It remains on file for 3 years after you complete the proposal, or 6 years from the date of filing — whichever comes first. If you complete a 3-year proposal, the notation could be removed as early as 6 years from filing.

A first-time bankruptcy is noted as an R9 rating (the lowest). It stays on your credit report for 6 years after discharge in most provinces (7 years in New Brunswick, Newfoundland and Labrador, Ontario, PEI, and Quebec through Equifax).

In both cases, rebuilding credit is possible during and after the process. Secured credit cards and credit-builder loans are common strategies.

Which Option Is Right for You?

There is no one-size-fits-all answer. Consider the following factors:

A consumer proposal may be better if:

• You have assets you want to keep (home equity, vehicle, investments)
• Your income is above the surplus income threshold
• You can afford to make regular monthly payments
• You want to avoid the stigma some associate with bankruptcy

Bankruptcy may be better if:

• You have few or no assets above the exemption limits
• Your income is below the surplus income threshold
• You need the fastest possible debt discharge
• Your total debt is relatively modest

If you are unsure, our debt relief quiz can help point you in the right direction. The most important step is to consult with a Licensed Insolvency Trustee, who is legally required to explain all of your options — not just the one that generates the highest fees.

The Process: Step by Step

Both processes begin with a free initial consultation with a Licensed Insolvency Trustee. During this meeting, the LIT will review your financial situation, explain all available options, and help you determine the best path forward.

For a consumer proposal, the LIT drafts a proposal document outlining the repayment terms and submits it to your creditors. Creditors have 45 days to vote. If a majority (by dollar value) accept, the proposal becomes binding on all unsecured creditors — even those who voted against it.

For bankruptcy, the LIT files the necessary paperwork with the OSB. You must attend two financial counselling sessions, submit monthly income reports, and surrender any non-exempt assets. After the required period (9 or 21 months for a first-time filing), you receive a discharge.

FAQ

Can I include tax debts in a consumer proposal or bankruptcy? Yes. Canada Revenue Agency debts, including income tax, GST/HST, and source deductions, can be included in both consumer proposals and bankruptcies. CRA is treated as an unsecured creditor in both proceedings.

Will my employer find out if I file? In most cases, no. Consumer proposals and bankruptcies are public records filed with the OSB, but employers do not receive direct notification. The main exception is if your wages are currently being garnished — in that case, your employer will be notified that the garnishment must stop.

Do I need a lawyer to file? No. Both consumer proposals and bankruptcies are filed exclusively through Licensed Insolvency Trustees, who are federally regulated by the OSB. You do not need a lawyer, though you may choose to consult one independently.

What happens if I miss payments on a consumer proposal? If you fall behind by three months of payments, your consumer proposal is automatically annulled (deemed to have failed). You would then need to either refile a new proposal or consider other options, including bankruptcy.

Sources

• Office of the Superintendent of Bankruptcy Canada (OSB)
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3